Dow Industrials Surge on Strong Earnings from Caterpillar, 3M

The Dow Jones Industrial Average surged Tuesday to notch its best day since September.

Better-than-expected earnings results from Caterpillar and 3M, among others, helped support major indexes after stocks had fallen Monday. Strong results from U.S. companies, as well as solid economic growth around the world, have underpinned stock markets and helped push them to record highs over the past year.

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Roughly a quarter of the companies in the S&P 500 have reported so far this earnings season as of Tuesday's close, with this week slated to be one the busiest, according to FactSet. By the end of Friday, more than half of the major index's companies will have reported results for the most recent quarter, FactSet says.

"We continue to see a strong improvement in earnings," said Celia Dallas, chief investment strategist at Cambridge Associates. While valuations are still a concern, Ms. Dallas cautioned that investors shouldn't limit their exposure to U.S. stocks too much yet. "U.S. equities tend to be more defensive when you get into periods of stress," relative to stocks elsewhere in the world, she said.

The Dow industrials gained 167.80 points, or 0.7%, to 23441.76 -- its 54th record of the year and largest one-day point and percentage gain since Sept. 11. The S&P 500 rose 4.15 points, or 0.2%, to 2569.13, while the Nasdaq Composite added 11.60 points, or 0.2%, to 6598.43.

Shares of 3M jumped $13.10, or 5.9%, to $234.65 after the maker of Post-it Notes, Ace bandages and Scotch-Brite cleaning pads reported higher profit and revenue that exceeded analysts' expectations, while also raising its outlook. It was 3M's biggest single-day percentage gain since 2009. The stock was the best performer in the Dow industrials and the second best in the S&P 500 for the day.

Caterpillar, meanwhile, gained 6.56, or 5%, to 138.24 after the company posted stronger-than-expected revenue and profit growth and boosted its outlook for the year.

Together, the two companies contributed roughly 135 points to the Dow industrials on Tuesday.

Boeing, a major contributor to the Dow's gains this year, is expected to report results Wednesday morning. Shares of the aerospace giant rose 3.68, or 1.4%, to 266.00 on Tuesday and are up about 71% for the year.

Money managers welcomed the day's gains in U.S. stocks. But Eric Schoenstein, portfolio manager of the $6 billion Jensen Quality Growth Fund, said he has concerns around whether stock jumps driven by earnings can be sustained amid lofty valuations and a long-running rally.

"It could be a situation where the price is getting a little bit ahead of what the opportunity might be," Mr. Schoenstein said, adding that his investment committee will discuss holdings such as 3M on Wednesday morning.

Central banks are another focus for investors this week. The European Central Bank is expected to announce changes to its massive bond-buying program after its meeting Thursday. Economists expect the ECB to reduce its monthly asset purchases, but also to extend the program for a number of months into 2018.

Investors "need to exercise caution as markets enter a different phase with less central bank support than has been the case over the past decade," said David Simner, portfolio manager at Fidelity International.

U.S. President Donald Trump is also expected to unveil his pick for the new leader of the Federal Reserve within the next 10 days from a roster of candidates that include current Fed Chairwoman Janet Yellen.

On Monday, Mr. Trump said he was "very, very close" to a decision, and on Tuesday he asked Republican senators in a show-of-hands poll which candidate they preferred, Fed governor Jerome Powell or Stanford University economics professor John Taylor.

A hawkish candidate might send U.S. Treasury yields higher and boost the dollar, analysts say. The yield on the 10-year U.S. Treasury note rose to 2.406% from 2.375% Monday. Yields rise as prices fall.

In currencies, the WSJ Dollar Index, which tracks the dollar against a basket of 16 currencies, was up 0.2%.

IHS Markit said Tuesday its composite Purchasing Managers Index for the eurozone -- based on survey responses from manufacturers and service providers -- fell to 55.9 in October from 56.7 in September. The index still points to solid growth, with a reading above 50 signaling an expansion in activity.

The Shanghai Composite Index finished up 0.2%. Japan's Nikkei Stock Average extended its record-setting streak of daily gains to 16 by closing up 0.5%.

Write to Michael Wursthorn at Michael.Wursthorn@wsj.com and Georgi Kantchev at georgi.kantchev@wsj.com